The Future of Planning Is Therapeutic

Over the last several decades, advisors have marketed their value proposition to clients and prospects around money management and positive returns. But money management has become, in the parlance of the industry, “commoditized,” thanks in no small part to a decade-long bull run in equities and the tidal wave of advised money flowing into low-cost, indexed strategies. As has been said often and everywhere in the halls of wealth management firms, the next wave of planning will derive value by focusing on more aspects of a client’s life, not just financial. Speakers at the Future Proof wealth festival held this week in Huntington Beach, Calif. reiterated the point.

The future advisor will look more like a behavioral scientist, a psychologist or therapist, said Anders Jones, CEO and co-founder of Facet Wealth.

“Focusing on assets under management and saving for retirement, which is sort of the traditional definition of financial planning, is way too narrow of a scope,” he said. “When you broaden the horizon, the reality is every decision you make in some sense is a financial decision. Financial planning done right and redefined from what it is today will really look at every aspect of your life.”

Facet Wealth considers itself a financial technology company, but it also employs more than 100 Certified Financial Planners across the country, to balance the tech with human advice. Jones says his own personal CFP is almost like a financial therapist.

“Pulling in the behavioral and psychological segmentation around how people think about money is front and center for us,” he said.

Jones said the financial advice industry is currently at a turning point. In the 1980s and 1990s, advisors actually did add value through managing money. That’s no longer the case.

“If an advisor comes to you today and says ‘the biggest value that I’m going to add is by beating the market,’ you should run the other way,” he said. “The edge that any individual advisor can get just doesn’t exist.”

While the trend has been clear for some time, what’s less clear is how an advisor retools a practice around the new client dynamics – including how much they charge and for what services.

“Advisors that go through the exercise of defining what the value is they’re actually doing and then aligning their pricing structure with that—that’s the sustainable and survivable business model.”

Anders predicts that in 10 years, less than half of retail financial services clients will pay their advisor an AUM-based fee.

Christine Benz, director of personal finance and retirement planning at Morningstar, said her personal advisor charges on an hourly basis, and that model makes sense given the episodic nature of people’s planning needs. 

“If I wanted ongoing portfolio management that it would make sense for me to pay for it in that way,” Benz said. “The time that I have to put into the financial planning process to be a willing and able participate is very episodic and event-driven given what’s going on in our lives.”

“I wouldn’t write off that business model. For certain investors, certain types of people it can make a world of sense,” she said.

Colleen Jaconetti, senior manager in the investment advisory research center within Vanguard’s Financial Advisor Services department, argued that advisors can show clients their value during market ups and downs, when clients want to abandon their plan.

“The value that advisors add at this time doesn’t show up in any statement,” she said. “Finding a way to incorporate the value you add to the clients relationships by helping them stay the course, rebalance when it sounds counterintuitive can really have a meaningful difference on them realizing the value you’re providing.”